Do Public Goods Explain the Relationship Between Income Inequality and Birthweight?

Abstract

That income and socioeconomic status (SES) enter the child health production function and offer protective benefits to health is fairly well established in the economics literature. What has been debated is whether income inequality, or the dispersion of income in a society has a detrimental effect on health outcomes. This paper examines the relationship between income inequality at the state and county levels and infant health, and delves into one causal pathway through which inequality may operate upon health. The so-called neo-materialist relationship between inequality and health argues that the impact of income inequality operates upon health mainly because inequality affects the distribution of resources. The detrimental effect of inequality is thus posited to be detrimental to health through reduced provision of public goods. This paper addresses the question: Does the provision of public goods such as education and health care explain the relationship between income inequality and birthweight? In order to answer this question I estimate three sets of regressions. The first estimates the relationship between income inequality and public goods. The second set of regressions tests the magnitude of the relationship between child health and public goods such as the supply of hospitals and hospital beds, and government expenditures on health and education. The final set of regressions examines whether the inclusion of public goods as explanatory variables changes the income inequality effect on birthweight. Individual data is taken from 1991 and 2001 Natality Detail Files, while data for inequality measures and community characteristics are obtained from the decennial Censuses. Information on public goods and services are obtained from a variety of sources including the Annual Survey of Government Finances and the Area Resource File. I find that public goods are positively correlated with birthweight; and contrary to expectation, results suggest that income inequality is associated with higher public goods. Moreover, the inclusion of public goods measures as controls strengthens the relationship between income inequality and birthweight. To the extent that income inequality causally increases public goods, public goods potentially dampen the negative effect of income inequality on birthweight. Studies that do not take into account the public goods affect may underestimate the negative effect of inequality on birthweight.